Ahram Weekly

A spoonful of sugar?

Egypt’s sugar shortage has been taking its toll on local industry, provoking debate over government plans to meet the challenge, writes Hayat Hussein

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Al-Ahram Weekly

Only a few months ago, local sugar companies were worrying about the accumulation of stocks in their plants and the losses that they could face as a result of the local market being inundated with imported sugar.

Today, many people might wonder where those stocks have gone when they have to scrounge simply to find a small spoonful of sugar to sweeten their morning tea. Sugar seems to have all but disappeared from supermarkets nationwide. Its price has soared to unprecedented peaks, and many factories and bakeries have had to close as a result.

The sugar crisis has prompted the media to wonder whether government plans to face the crisis have exacerbated the problem. The government has lately widened its raids on factories and bakeries to curb possible hoarding of the sweetener, but many see those raids as having been implemented in such a random way that, together with the current dollar shortage, they have threatened the local food industry and sent a negative message to foreign investors.

Social media, for its part, has been having a field day, joking about what people see as random policies on the part of the government. One of the most circulated jokes has been about the arrest of a small café owner on charges of hoarding 10 kg of sugar. The man was temporarily released after a few days, but had to pay a LE1,000 fine for “storing sugar”.

The charges have not been dropped, and the man awaits a verdict. However, the incident has provoked a wave of sarcasm on Facebook. One joke that went viral questions whether actor Ahmed Eid should also be arrested for starring in a comedy entitled “The Sugar Crisis.” Many have also joked that the LE1,000 fine the coffee shop owner had to pay could have allowed him to buy at least 90 kg of sugar, even its current price, which has recently increased by 100 per cent.

Public ire over the crisis has prompted the government to move, but many critics insist that government statements about making more sugar available in the market at an affordable price of LE7 per kg are no more than media propaganda. Many insist that they can hardly find any sugar in shops in their neighbourhoods, and that even when they do it costs some LE17 a kg.

Parliament, in turn, has also been critical of government handling of the crisis, and MPs have been pushing for an investigation into previous government claims that Egypt had enough sugar to cover its needs for the rest of the year. MP Hisham Al-Sheiny, chair of the parliament’s agriculture committee, has urged the Ministry of Supply to provide an explanation for the crisis, while the committee’s deputy chair, MP Raif Tamraz, has declared that the committee will remain sitting until the crisis is solved.

Tamraz further urged the government to tighten its grip over the markets in order to avoid possible abuses. The Ministry of Supply responded with an announcement that it was pumping larger quantities of sugar into the market, increasing supplies from 4,000 to 9,000 tons per day in order to meet public needs.

Minister of Supply Mohamed Ali Moselhi said that the ministry was building up its efforts to meet the shortage and that state-owned trucks were moving nationwide to supply sugar as part of the government’s broader plans to pump an additional 5,000 tons of sugar into the local markets.

Moselhi further said that the 120,000 tons of sugar allocated for the ration cards programme would remain available at their original subsidised price of LE5 per kg for the public and LE7 for industrial purposes. He also made it clear that Egypt still had enough sugar to meet its needs until February 2017.

Yet, factories and even small bakeries that use sugar as a raw material remain in agony. Mohamed Abdel-Mawla Ismail, the owner of a bakery shop in Suez, said he had had to wade through a tangle of bureaucratic woes as a result of the crisis, ultimately paying double his usual costs in order to transfer seven tons of sugar for his basic monthly production from the Swiras sugar factory in Alexandria to Suez where his bakery is located.

“I was afraid I would get arrested on charges of hoarding sugar, so I provided original invoices to the supply authorities in the governorate of Alexandria proving I urgently needed that quantity to avoid having my bakery closed down. But they hardly seemed to be convinced,” Ismail told Al-Ahram Weekly. “One official simply shrugged, saying all he cared about was making sugar available to the public.”

Ismail, however, did not give up, and he kept knocking on doors until he reached the governor himself. The governor gave Ismail the go-ahead and asked him to call his office in case he had problems at check points.

“Eventually I was able to transfer the sugar safely, but I had to pay double the usual rate to the driver on the grounds that he was taking a risk,” Ismail lamented. “If the crisis persists, many factories will have to close down, leaving many workers unemployed,” he said.

SUPPLY CRUNCH: Mohamed Rabie, the owner of three confectionary factories employing 180 workers in the Badr Industrial City, has decided to play it safe and close down until the crisis is over.

“We are not thieves,” Rabie said. “We just need sugar for our factories. We even buy it at market and not ration prices.”

But small industries are not the only ones suffering. The authorities have been expanding raids on factories, and confiscations of sugar stocks have peaked over the past few weeks. Only a few weeks ago, news that Edita Food Industries, one of Egypt’s largest food producers with LE5 billion in investments, had had to shut its factory in Beni Sweif after the authorities seized 2,000 tons of sugar hit the headlines.

A Supply Ministry official told Reuters at the time that the 2,000 tons of sugar were confiscated when Edita failed to show original invoices for stocks held in Beni Sweif. But Edita’s Hani Berzi, in charge of the factory, retorted that documents were available proving that the sugar was needed to meet two weeks of the factory’s production.

Edita’s sugar was released a few days later, and the factory reopened. But the incident has opened a Pandora’s Box of questions about the way the government has been handling the sugar supply crunch.

The Federation of Egyptian Industries was quick to denounce the authorities’ clampdown on Edita on the grounds that the factory was officially licensed and had possessed original invoices proving it needed that quantity of sugar to cover its production.

It issued a statement slamming the government’s “arbitrary measures” and its clampdown on factories that were already in the doldrums as a result of the dollar shortage, adding that such measures would harm local industry and exports and discourage both local and foreign investment at a time when Egypt was in dire need of investors.

For the federation, the local industry is “a red line that should remain uncrossed” because it provides the local market with affordable products, and measures against it would disrupt productivity.

The federation’s statement has seemed to fall on deaf ears, however, and not a day now seems to pass without news of raids, arrests and confiscations of sugar. Arrests of sugar tycoons have been hitting the headlines of the yellow press on almost a daily basis, almost like reminiscences of the old days of late president Gamal Abdel-Nasser when the authorities also routinely moved against businessmen accused of abusing their positions.

The government seems adamant that such seizure campaigns are needed to control the market and meet the shortage. Prime Minister Sherif Ismail recently explained on television that the raids on bakeries and factories had resulted in the seizure of 9,000 tons of sugar that could now be redeployed to ease the sugar crunch. He told the CBC satellite channel that the seizures of sugar had also replenished Egypt’s stocks of the sweetener in a way that would cover the nation’s needs for at least three months.

While conceding that a few mistakes had occurred in the process, Islam was quick to insist that these were “isolated incidents dealt with on the spot.” “You can’t just leave the market to do what it likes without regulation,” he maintained.

But sceptics like Ismail Salem who works for an import company wonder if news coverage of smugglers and the amounts of sugar seized in raids has actually been overblown.

“Smugglers no doubt exist, but it does not seem logical that they would store such huge quantities of sugar,” Salem said. “Hoarding 100,000 tons of sugar means keeping at least LE500 million in frozen funds, and it sounds illogical for any trader to keep that sum of money frozen for a long period.”

“Such raids will not only harm the local industry, but also tarnish Egypt’s image in the global market,” Salem lamented. “I received a call from the owner of a company in Geneva recently inquiring in disbelief about the sugar seizure incident at Edita.”

BEHIND THE CRISIS: Official figures indicate that Egypt produces up to 2.2 million tons of sugar annually, while it consumes at least three million tons, with the gap filled by imports. But these imports have plunged under the double onslaught of the dollar shortage and soaring global sugar prices.

Seven state-owned and private companies produce sugar in Egypt, with only one depending on sugarcane in the process. Sugarcane is cultivated in Upper Egypt, and the only company using it in the production of sugar is state-owned and monopolises half of the total production of sugar in Egypt. The remaining six companies depend on sugar beet, which is cultivated in the Nile Delta. They are either privately or state-owned, but more often than not the state holds large shares in most of the privately owned companies.

Some six companies are at the helm of importing sugar to Egypt to help fill the gap between production and consumption. Many local sugar-producing companies also import raw sugar and refine it in refineries at the end of the cultivation season for sugarcane and sugar beet, which starts in September and ends in June, in order to keep factories and workers in motion during the dead season.

However, some traders told the Weekly that many had recently stopped risking funds importing sugar when its price had soared in international markets, hitting a 60 per cent rise, and the dollar shortage in the official market in Egypt had further raised its price on the parallel market to almost unprecedented levels.

“Many traders feared losses and stopped importing sugar, and this is one of the main reasons behind the current sugar crisis,” said Abdel-Hamid Salama, chairman of Delta Sugar, the largest company depending on sugar beet in the sugar industry.

The UN Food and Agriculture Organisation (FAO) Food Price Index, which measures monthly changes in the global prices of a basket of food commodities, averaged 170.9 points in September, an increase of five points, or 2.9 per cent, over the previous month and 10 per cent up on the same time last year.

“Except for a small decline in July, the Index has been climbing higher since the beginning of the year, and in September it reached the highest level since March 2015,” the FAO said. It added that the rise had been “predominantly driven by surging sugar prices, along with higher prices for dairy, meat and oils. In September, however, the rise was mostly attributed to a lift in dairy and sugar quotations.”

According to FAO figures, world sugar prices increased by 6.7 per cent in September compared to the previous month, marking the fifth consecutive monthly rise. The global surge in sugar prices, according to the FAO, has been due to a drop in the production of sugar in Brazil, the world’s largest producer and exporter of sugar, due to bad weather.

For Egypt, the surge in sugar prices has come in tandem with a dollar shortage crisis that has also contributed to the sugar crisis.

Egypt has been suffering blows to its economy since the 25 January Revolution in 2011. There has been a shortage of US dollars since due to the security and economic instability following the revolution. But this foreign currency shortage, which remains at the heart of the sugar shortage, peaked this year when the country’s foreign reserves further shrunk after tourism, a major source of foreign currency, was severely battered following the Russian plane crash in Sinai in October 2015.

In the meantime, the Central Bank of Egypt (CBE) has revealed that Egypt’s foreign debt saw a 16 per cent spike of $7 billion at the end of the last fiscal year, reaching $55.7 billion. Egypt has been struggling to meet the challenges, this represents and is seeking a $6 billion loan to reform its economy. This in turn is necessary in order to carry out the economic reform programme needed for Egypt to secure a $12 billion loan from the International Monetary Fund (IMF) to fill the financing gap over the next three years

However, the IMF loan requires the government to act on the exchange rate and lower energy subsidies. The country’s foreign currency deficit has already dealt several blows to the Egyptian pound, which saw major drops against the dollar over recent months, hitting LE16 in the parallel market while the official rate remained at LE8.8. This changed when the pound was allowed to float freely last week.

Last Thursday, the government took the unprecedented step of allowing the currency to float freely against other currencies as part of a package of sweeping measures. These seemed to move Egypt closer to securing the $12 billion IMF loan. Stocks jumped the most they have seen in eight years, and the pound slumped against the dollar after the CBE’s decision.

The CBE has needed to take the step of currency devaluation in order to replenish its foreign currency reserves to reach $25 billion. The reserves stood at $19.5 billion in September, a $3 billion increase over the previous month; according to statements by Central Bank Governor Tarek Amer.

But Egypt still needs to increase its foreign exchange reserves in order to be able to pump further dollars into the markets to support the local currency and curb a further surge in the exchange rate on the parallel market.

FLAWED POLICIES: It remains questionable how far these major changes in foreign exchange rates will affect sugar imports, but many traders are already insisting that the sugar crisis has most to do with government policies.

“We stopped imports to avoid losses, but we are not the cause of the crisis,” Salem said.

Many traders would agree with Salem that the government miscalculated when it decided to impose 20 per cent temporary anti-dumping tariffs on imported white sugar in 2015 with the aim of protecting the local industry. The decision was made against a backdrop of claims by local producers that they had stocks of sugar that would cover the nation’s needs up to the end of 2016 and that they risked major losses when these accumulated.

Former trade and industry minister Mounir Fakhri Abdennour explained at the time that investigations had predicted that these losses could be up to LE1 billion. Abdennour said that a drop in global sugar prices had encouraged importers to inundate the market with imported white sugar, posing threats to Egypt’s local sugar industry as well as harming local sugarcane farmers.

But these anti-dumping tariffs, that the government has removed only earlier this week, seems to have backfired now that imports have dropped and the claimed stocks of local sugar have vanished.

“These tariffs, together with the shortages of the dollar, have helped to create the current crisis,” Rabie lamented. “It would have been wiser for the government to allocate the local sugar production for public use and leave the door open for sugar imports to supply industries.”

In the meantime, the Holding Company for Food Industries, a sugar producer, has obtained an administrative court decision that gives it the right to monopolise the distribution of local sugar. Salem said that this had “exacerbated the crisis by making sugar move directly from local producers to the company, and it has even affected the already limited ration card quotas.”

The lack of accurate data regarding sugar production and consumption has also created a gap that has remained unaccounted for in government statistics.

According to the Central Agency for Public Mobilisation and Statistics (CAPMAS), the source of official statistics, Egypt’s population is seeing an annual growth rate of two per cent, which means that sugar consumption should increase accordingly. But Salem said that this increase was probably not accounted for in official figures, as these still show that Egypt consumes three million tons of sugar per year regardless of the annual growth in population.

Farmers have also been suffering, and this seems to have affected the cultivation of the sugarcane and sugar beet that are the main sources of the local sugar industry. Subsidised fertilisers are becoming less available, while farmers’ costs have soared and arable land has been shrinking.

These economic woes have driven some sugar beet farmers to turn to growing alternative crops instead that could yield higher profits and avoid further losses.